Saturday, May 18, 2013

Is Your Tasting Room Successful?

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It's your fault!

The other day I stopped in at Wal-Mart to get some things. While checking out, a very large woman in very tight clothes came up from just outside the store and angrily told my cashier she lost her debit card after she paid. While I looked around the floor for the card the cashier said, "Yes, I remember you putting it back in an envelope" to which the woman replied, "Its not in there. I put it in the envelope but you rushed me to get out of line. You rushed me. I want to see your manager!" ..... Are you kidding me? I had to work at holding my tongue.
What is it about the human condition that makes it so hard to accept personal responsibility? A similar version of that is the medical condition known as ....

Headinthesanditosis.

Quite sometime ago I had a client come in the office to talk. Already three vintages behind the market and unable to meet financial obligations, it was time to have a direct discussion about viable solutions. She was really quite an intelligent person but before we could even get to the part where we discussed alternatives in her control like sales strategy, ranking distributors success, branding, market presence, pricing strategy, proper cost allocations, ways to use inventory to raise cash, etc., I was offered the following:

"Its not like I'm the only one with financial problems. The whole industry is suffering and not current with releases. The only problem I have is you wont give me more money."

I had to tell her the view she held of the market was askew. We didn't have any other clients who were three vintages behind and in fact because of our financial benchmarking database, I was able to show her just how far out of the norm she was. She was so shocked at the information (see her in shock in the picture ----> ), that rather than accept what was in front of her, she instead tried to poke holes in the database. "Wait, are there foreign wineries in there?"

What is it about the human condition that makes us stretch the bounds of credulity rather than accept it when we aren't measuring up?

Tasting Room Success

That gets us to the point of this blog. Is your tasting room successful? How do you know? What are you measuring success against? Is the tasting room making enough money? What is enough money for the tasting room? Are your staff salaries in line with the market or are you overpaying? Is your club retention long or short of average? What's your conversion rate of visitors into club members?

Hopefully unlike the woman I ran into in Wal-Mart, you understand if it's someone else's fault, your destiny is in someone else's control. So you instead are an enlightened person and crave metrics from which you can diagnose where there are opportunities to succeed, and when you are operating within or below tolerances. Hopefully you want to find as many measurements as you can, and then rank where you can get the best returns by investing your time and money in those. and moving past or eliminating things that give you minimal or negative returns.

You probably measure club membership length and your results are better than what is portrayed on the slide above (click on it for a larger view). On average, club memberships last just a little over 2 years. That means someone probably came into your tasting room, they signed up, and got their first shipment. When they got their second shipment the next year, they decided to leave the club. That is horrible performance in my view. It cost so much money to get the first sale in the door when you fully burden that sale with the overhead and salaries of the tasting room staff. You probably didn't really make money on that first sale. Then you shipped a second case the following year and they quit the club.

If you want to make money out of the tasting room, this is one metric that has to be improved upon. Furthermore, about those people that left - why did they leave? If I have to presume, I'd guess they didn't like what you shipped, but when I ask that question of some, I can get answers that reflect they really don't know why people left the club. Its not uncommon to start in with... it was probably the economy... maybe they lost their jobs ... they could have lost their house and there was no forwarding address ....or maybe the dog ate my homework?

What is it about the human condition that makes it so hard to want to dig out facts that could point to someone dissatisfied with our product and services? Shouldn't we know why they left so we can address any issues?

On Tuesday morning of this week, Wine Business Monthly and Silicon Valley Bank will be hosting a live video conference on Tasting Rooms, CRM, Direct Sales, and Wine Clubs. We've had over 500 wineries participate in the survey and found some really interesting information that you can use to benchmark your own winery's performance. Its being offered gratis and I hope you can join in.

Videocast

May 21, 2013

What do you think? Why do people not benchmark their performance? Why is it so difficult at times to ask someone how we can improve? Why are wine club customers turning over every 2 years in the wine business? Log in and offer your thoughts below.

I'd be curious to hear from those who attempt to collect cancellation information. It has been my experience that members cancelling more than half time do not communicate the reason for leaving...and when prompted through email, phone or otherwise (although nearly 95% of cancellation happen through email correspondence) I'm not certain the customer is giving a factual reason. But more frequently I expereince a loss of contact with members-credit card expires, emails/phone calls go unanswered. Does anyone have a more effective system for collecting that data? and more importantly, how are you able to combat the cancellation and extend the life of the membership?

Jennifer - Thanks for logging in. That is a great question. I hope some of the readers are willing to share their own experiences here. Integrating data base hygiene is a critical part of any management process. One solution is the telemarketing businesses out there like Wine Leverage who can make the calls for you and return a clean and secure data base, but I'm sure there are other ideas out there.

We've had customers drop mostly via email as well. Seems ours feel a bit more guilt, such that they usually give a reason. The reason is almost always either: "We've got way too much wine right now and need to take a break for a while," or "We are in between jobs or can't afford it right now." We also get those customers that just "disappear." They move, change contact info and their credit card, such that it's very difficult/time consuming to track them down. Sometimes we can spot a move when a shipment notification postcard is returned to us as undeliverable. No question that a club takes a ton of time, but you can turn regular shipments into nice profits by offering incentives like penny shipping if they add to their normal shipment, via postcards, customized email, and phone calls to VIP-level members.

In my experience, customers will usually tell you the truth about why they are leaving if you actually connect with them on the phone or digitally by text or email. Best practices inside and outside the wine industry dictate that you ASK THEM why they are leaving and give them an easy way to respond truthfully and accurately (no leading questions). If you don't connect with them real time---follow up several times a year with an anonymous eSurvey and incent former customers modestly) to share their point of view. Rob is right, we must HEAR the customer's true opinion and be willing to take corrective action even if we don't like what they say about our products. Every other industry takes the customer's viewpoint into account (from operations to product development) so why don't we?

“Marketers Reach Out to Loyal Customers;As Holidays Near, Retailers Tap Statistical Models,Relying More on Targeted Ads Than a Shotgun Approach”

By Emily SteelStaff Reporter

It’s an adage of the business: Persuading a satisfied customer to return is cheaper than attracting a new one. Now, in the struggle to do more with less, that concept is becoming even more important.

Acquiring a new customer costs about five to seven times as much as maintaining a profitable relationship with an existing customer, says Marc Fleishhacker, managing director at WPP’s Ogilvy Consulting . . .

REPEATING AN EARLIER COMMENT ON CUSTOMER SATISFACTION SURVEYS . . .

Excerpts from BusinessWeek “Management” Column(January 30, 2006):

“Would You Recommend Us?That simple query to customers is shaking up planning and executive pay.”

. . . Peter McCabe . . . chief quality officer for General Electric Co.'s health-care business, read a Harvard Business Review article recommended by a colleague. It suggested companies measure customer loyalty by asking one simple question rather than relying on lengthy satisfaction surveys: "On a scale of zero to 10, how likely is it that you would recommend us to your friends or colleagues?" The article showed that "net promoter scores," which measure the difference between the percentage of customers who give high responses ("promoters") and those who give low ones ("detractors"), correlate closely with a company's revenue growth. Promoters are defined as customers who give the company 9 or 10, while detractors hand out "0" through 6. Customers who log 7 or 8 are deemed "passively satisfied" and aren't calculated in the final score. The article's finding stopped McCabe in his tracks. "Wow, this is kind of perfect," he thought.

. . .

. . . net promoter scores are becoming a popular, and, many say, powerful way to measure customer loyalty, drive compensation, and flag troubled products. By asking customers whether they would put their own credibility on the line by recommending a company to a friend, net promoter scores, say fans of the concept, are truer indicators of loyalty and future behavior and, therefore, sales growth. . . .

[Aside: see book titled “The Ultimate Question” by Fred Reichheld, founder of Bain & Co.'s loyalty practice and author of the Harvard Business Review article.]

. . . [General Electric and other corporations have adopted] . . . "net-promoter score” . . . a tool for tracking customer sentiment that focuses on one question: How likely are you to recommend us to a friend?

Respondents are grouped into "proponents," "detractors" and "passives." Adherents say the concept, being promoted by consulting firm Bain & Co., allows them to track, and quickly address, customer concerns.

. . .

GE asks customers to rate on a scale of zero to 10 how likely they would be to recommend the company to a friend. Those who rate GE a nine or 10 are promoters, seven or eight passives, and six or lower detractors. To create a net-promoter score, the company subtracts the detractors from the promoters.

Dr. Steven Cuellar, an economics professor who studies consumer behavior in the wine industry, said he’s developed an analytical model that he thinks the industry could use to understand club behavior and eventually optimize member lifetime and value.

He said trying to get a statistical handle on wine club attrition is exceptionally challenging because of the nature of the data. One issue is that new members and existing members have to be “censored” from the data, leaving only those who drop out of clubs. “Think of it as if you’re a doctor, and the only people you observe are those who have died,” he said.

[Subheadline:] Using ‘Survival Analytics’ for Wine Clubs

Consequently, Cuellar said he turned to very specific type of statistical analysis used by the medical field and known as survival analytics. The approach is used to evaluate the effectiveness of treatment by tracking the survival rates of a certain group of people all diagnosed with the same disease.

Using a similar approach for wine clubs, Cuellar monitored new club members over time for a handful of small wineries. He then pegged the probability of these members remaining in the club versus the length of the club membership in months.

He said he generally found membership exhibited a sharp decline after a few months, followed by a flattening of the curve. With such an analysis of its own club, he said, a winery could begin to better understand the behavior of its customers. . . .

In a follow-up email, Cuellar said because he’s tested his model on just a few wineries he couldn’t provide an “average” or benchmark to which wineries could compare their own numbers. He said he has had some preliminary discussions using data from eWinery Solutions’ more than 600 winery clients to create a report for the industry.

[Subheadline:] ‘The Data Is In Your Hands’

A few audience members asked about retaining their existing wine club members. To do so, you need to know who they are and patterns in their behavior, said Richard Kline, founder and CEO of eWinery Solutions, who was one of the speakers at the forum.

. . .

Joining Kline at the forum was Ahin Thomas, co-founder and president of Vintners Alliance, which manages and builds ecommerce for its winery clients. Thomas and Kline both mentioned companies that help other businesses with customer-relations management.

. . .

Thomas said the consumer that purchases wine through a club or direct from the website is a rare breed and something to be coveted. “It’s really hard to find them, and when you do, you don’t want to let them go,” he said.

A study was done a couple of years ago (CaliforniaWineryAdvisor.com) on that very topic: "What is the number one reason why you quite your wine club?" The top three answers were:

1. Being sent wines they didn't like: 27%2. Paying too much for wine: 17.3%3. Paying too much for shipping: 16.7%

So the main reason is the taste of the wine, followed by price. If I were a winery, I'd work to improve the customer's response to #1, and see if I could lower #'s 2 and 3. Especially #3, and make a big deal of it.

In my own experience, It's the customer service that made me leave a wine club. If I'm going to be charged $XX.00 dollars regularly to have a case of wine shipped to me, I'd like a little bit more service: send me recipes to go with it, call me to ask how I like it, throw in an extra something, send me a "thanks" card, ask me to write a review about the wines on their website, ask me for pairing ideas. Don't just ship me a case of wine every now and then and charge my credit card. That makes me feel taken advantage of, and I'll quit.

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